Tax impact of mergers and acquisitions: efficient tax planning

Introduction

Mergers and acquisitions are corporate transactions which, beyond their business complexity, entail a number of tax implications that can have a significant impact on the bottom line. Appropriate and proactive tax planning is therefore essential to ensure the success of these transactions.

Why is tax planning so important in mergers and acquisitions?

Tax planning in mergers and acquisitions is crucial because of its ability to optimise the tax burden associated with these transactions. By anticipating and assessing the potential tax risks inherent in each transaction, strategic decisions can be made that minimise unpleasant surprises and unnecessary costs.

The careful choice of the most appropriate legal structure, be it a merger, an asset acquisition or a share acquisition, has a direct impact on the tax burden of the resulting company. A well-designed structure can maximise available tax advantages and reduce unnecessary tax exposure.

Similarly, tax planning makes it possible to identify and take advantage of the various tax opportunities and special regimes that may apply to mergers and acquisitions, thereby optimising the financial results of the transaction.

The main taxes involved in mergers and acquisitions

Merger and acquisition transactions usually give rise to a number of taxes, the most important of which are as follows:

1. Corporate income tax: This affects both the company acquired and the acquiring company, and is levied on capital gains generated on the transfer of assets or shareholdings.
2. Value Added Tax (VAT): This can give rise to a refund of input VAT in certain circumstances. It is also necessary to analyse it from the point of view of the acquisition of a business, in the event that no shares or stocks are acquired.
3. Transfer Tax and Stamp Duty (Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados): This tax is levied on certain transactions, such as the transfer of real estate.
4. Excise taxes: Depending on the nature of the activity of the companies involved, other excise taxes may arise.

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Keys to efficient tax planning

Efficient tax planning in mergers and acquisitions requires a comprehensive view of the transaction and a thorough understanding of the applicable tax rules.

It is essential to know the tax situation of each of the companies before starting the operation, in order to identify potential problems and opportunities.

Similarly, having a clear understanding of the correct valuation of assets and liabilities is essential for determining the tax base and calculating the corresponding taxes.

The choice of the legal structure of the transaction will have a direct impact on taxation, so it is essential to analyse the different alternatives and select the most beneficial one.

Finally, the contractual terms of the transaction can have a significant impact on the tax burden, so it is important to negotiate them properly.

Conclusion

Mergers and acquisitions are complex transactions that require careful and detailed tax planning. Proper planning can help reduce tax costs, optimise the results of the transaction and ensure tax compliance.

At ILP Abogados we have a team of professionals specialised in commercial and tax law who will advise you in all phases of a merger or acquisition transaction, from the initial planning to the execution and subsequent monitoring.

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